Calculate how much you need to invest for your Kid’s Education

As a caring parent you would always want your child to get the very best. With growing standard of living, the Kid’s education expenses are consistently rising. I believe the average rate of education inflation (the rate at which education expenses are rising) is around 10% to 15% depending on the location.

In this post let us understand – How to calculate the future value of Kid’s Education Goal amount? How much should you save/invest for your kid’s College education?

Calculate the Future Value of Kid’s Education Goal Amount

For calculating the future cost of education expenses, you need below details:

Kid’s age

No of Years remaining to attend college

Current value (cost) of College Education. You may have to do little bit of research to find out the average cost of college education in your preferred location.

Education Inflation (We can safely assume this as minimum 10% 🙂 )

Let us do the calculation with an example.

Example– Mr Sundaram wants to plan for his kid’s higher education. Child’s age is 5 years and will attend college in 12 years from now. As per his research, he came to know that the current cost of Engineering Education in his city is around Rs 5,00,000. He wants to find out what is the Future cost of his goal?

I have used MS-Excel’s FVfunction to calculate the future valueof goal amount. (FV Function variables are Rate 10% from B4 cell, Duration 12 years from B3 cell and Current cost of education Rs 5 Lakh from B5 cell). So, at 10% inflation rate the college expenses of Rs 5 Lakh will become Rs 15.69 Lakh in 12 years. Mr Sundaram has to accumulate this amount for his Kid’s education.

How much do I need to invest for my Kid’s education?

Mr Sundaram now knows that he requires around Rs16 Lakhs in 12 years from now. He further wants to calculate how much he has to save every year to achieve the goal amount. He also wants to find out how much he should save if he opts for Fixed Deposits (or) Mutual Funds (or) Stocks?

Mr Sundaram has to save Rs 77,913 per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The yearly savings amount is invested in Fixed Deposits which may give 9% returns. (You may refer the above “PMT function” image on how to calculate.)

Scenario 2 (If Savings are invested in Mutual Funds)

Mr Sundaram has to save Rs 73,382per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The yearly savings amount is invested in Mutual Funds and he expects 10% returns from Mutual Funds.

Scenario 3 (If Savings are invested in Shares)

If Mr Sundaram decides to invest in Stocks then he has to save Rs 65,023 per yearfor the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The stock investments may give him returns of 12%.

Important Points to Ponder upon

You can consider the above yearly savings amount (I have provided a calculator below. You can use it to know your goal amount)as the minimum contribution amount that you need to save/invest. As and when your income increases you can keep contributing more towards your yearly savings. Accordingly, you can re-calculate the required Target goal amount as explained above.

If you choose to invest in mutual funds (or) stocks then it is better to move your fund to Safe Investment avenues like Fixed deposits, atleast 2 or 3 years before the Target goal year. By doing this you may prevent the accumulated fund from eroding.

Besides these savings, have a good life insurance coverage. Consider taking Term insurance plan(if you do not have). It is better to avoid Child Education Insurance plans. I believe Balanced Mutual Funds with the combination of Term Insurance plan may prove to be a good decision. (You may like visiting my post on “Best Balanced Mutual Funds.”)

Do not buy a financial product just because the scheme name has “Child plan” on it. Understand the features, benefits and risks associated with that investment option.

Regularly monitor and track your investments. Also, be informed regularly of the cost of education for various courses.

After reaching the goal year, based on the fee payment conditions (like one time payment or per year basis) you may still need to manage the fund carefully.

Sreekanth Reddy

Sreekanth is the Man behind ReLakhs.com. He is an Independent Certified Financial Planner (CFP), engaged in blogging, financial counseling & property consultancy for the last 6 years through his firm ReLakhs Financial Services . He is not associated with any Financial product / service provider.
The main aim of his blog is to "help investors take informed financial decisions."

Comments

Jayanthisays:

November 9, 2016 at 3:22 pm

Hi Sreekanth,
First off, thanks a ton for putting up such useful information in such a easily understandable way with illustrations, explanations and for your supportive and thoughtful responses to all reader queries. Keep it up !
I want to invest 4K in suitable debt funds per month towards my goal of saving for my child’s education needs, 8 years away. I’m saving 6K in monthly SIPs in diversified equity funds towards the same goal.
I want to know which are the debt funds which will be suitable for this purpose.
Thanks.

Hi Sreekanth,
Yes, 60:40 allocation is my plan, 2 years prior to when I’m likely to require the money, I want to move a proportionate chunk of my equity investments into Debt.
I read up the information on Debt funds as you have suggested.
I would like to not risk any loss of capital in the debt portion of my investment.So, as liquid funds are the least risky in the Debt category, would it be prudent to start an SIP in one of the best in class liquid funds ?
Also, would it be wise to move my equity assets into this same liquid fund as my goal year approaches ?

On a different note, I would like to understand what the various debt market instruments are – treasury bills, commercial paper, bankers’ acceptances, deposits, certificates of deposit, bills of exchange, what they mean and how do they work. I want to understand for myself how the risk-return values are calculated for each, based on the nature of the instrument.
Can you please guide me on where I can get this information. Thanks a lot.

Dear Jayanthi,
Your strategy of switching to Debt funds before one year of target year, is good.
Liquid funds are safest out of the all debt fund types.
Kindly search in Google, plenty of info is available on debt securities.

Thank you for putting down a lot of useful information regarding the personal finance.

I am 29 years old married with 2 years old daughter and 1 year old son. I did not buy any term insurance plan since my family is not dependent entirely on me. I am investing 1 Lakh per year in Sukanya Samriddhi Scheme since 2015.

Please advise if the above MF allocation is proper or do I need to modify it. My goal is towards my kids education, marriage and retirement planning. My investment horizon is at least 15 years. Also I would like to know if it is better to go for a Direct Mode rather than Regular Mode for the above Mutual Funds.

Hello Mr. Reddy,
Awesome work and enjoyed reading your articles.
I am 33 year old married with 2 year old son and having term insurance 50 lakh and 3 lakh health insurance for family
Currently I hold 5 mutual funds namely HDFC prudence, HDFC top 200, ICICI focused blue-chip, reliance small cap and reliance tax saver fund investing 2k each per month. Please advise is the MF allocation is proper or do I need to modify focusing my sons education and his marriage.
Also currently I am living on rent and want to save some money for my house purchase and initial installment. And I can add another 10K in MF. Please advise and suggest where and which is the best way to invest and allocate money for future financial security.

As such there was no particular reason for that. I just thought to distribute the investment for lower risk. And i now think that these are too much. So just trying to get an answer for , which one should i remove from my portfolio as per your thoughts. If you can help, it will be great.

I have two kids aged 5 and 3 years. Kindly suggest best ways to invest for their education. I can invest up to 20000 per month. And what would be the best time frame to accumulate money for my kids education.

I have SBI term insurance plan and health insurance provided by my company.

I have very less idea about mutual funds and SIPS’s. I am a 30 year old and have twin daughters who are 1 year old.
I have already invested 1.5 lakh per year for each in Sukanya Samriddhi Yojana.
Can you suggest SIP’s or mutual funds or debt funds for 10 – 20,000 per month to help me accumulate good money and please suggest time duration.
I have no particular goals.
Also, I’m very particular that I don’t lose my primary investment money.
My monthly earnings – 1 lakh per month (30% bracket).

Dear Vineetha,
You are the best person to decide on your investment time-horizon, based on your financial goal(s).
Do you have adequate life / health insurance covers?
If you would like to accumulate good amount of money then you have to take risks.

I want to save some money for my parents future, they are now in 50s, I want to basicaly invest somewhere so that they can get a monthly in come for there later days, if I can invest 2-3 lakhs what will be the optimal or best plan I can go for.

Hi Sreekanth, I like your blog as it is easy and simple for layman. I have 2 questions.

1) I have Rs 100000 surplus to invest (after exhausting PPF and four equity MFs) if I want to invest one time for 3 or 5 years which is the best investment option. Don’t want to invest in multiple MFs as it will complicate record keeping.

2) If any of my MF schemes don’t do well, after redeeming where should I direct the money to create a surplus instead of putting in idle Savings or FDs.

Dear Suresh,
Invested funds are good ones individually.
But 1 & 2 are from the same fund category – Large cap. This may lead to portfolio overlap. You may consider to exit from one fund and add one Mid cap fund like UTI midcap / Franklin smaller co’s fund for long-term.
Invest Rs 1 Lakh in HDFC balanced fund ( 3 to 5 year time-frame).

Thanks for the response, this probably answers my today’s query as well. I am new to investment field and still in learning phase. Until today I was under impression that the best way to park lump-sum amount (around 7-8 lakhs) is STP only. But probably I need to start from scratch on this plan. Could you please advise what could be the best option to invest this amount? This lump-sum amount is available for long term and it is calculated after creating sufficient FD’s for next 2-3 years. Also ELSS SIP’s are in place as well.
Thanks in advance !

Now if I want to invest remaining lump-sum amount for 1 and 2 years time frame (based on when I need that money). Is FD the best option to invest for short time frames of 1-2 years or less? Please advise.

Hi,
I openned the PPF Account with initial amount is Rs 10,000/ on 10-August-2015. And then i deposit Rs 40,000 on
12-Sep-2015.
Please answer my below questions

Question 1) Can i get any interest on Rs 10,000 for of month of September(30-Sep-2015) or Not?
Question 2) Can i get any interest on whole Rs 50,000 for of month of October(31-Oct-2015) or Not?
Question 3) This Year shall i deposit another 1,00,000 on 5-October 2015 or not? If Yes means how much interest can i get for the whole amount(Rs 1,50,000 ) on 31-October-2015 and on 31-March-2016 OR it’s only for Tax saving?
Question 4) I would like to know what is the best date for next deposit (yearly or monthly basis)to get maximum returns & which one is good, monthly deposit or yearly deposit.?

Q 1- YES
Q2 – YES
Q3 – Interest on Rs,1,50,000/- for the period w e f October to March will be paid
Q4 – Best option is to deposit Rs, 1,50,000.- ( maximum limit ) on 5th April – so that you get the interest on the total amount for the complete year

Note – (a) the interest is due on monthly deposit as on 5th of the month
( b) there is no interest for deposit after 5th of the month
(c) the interest is paid only once a year – after March I . e the interest is compounded annually

I am a Senior Technical Analyst working in Boston, US. I am interested in investing for my children’s education. The time horizon is 20 years and 23 years from now. I am looking for two corpus funds of 1.5 Cr and 1.8 Cr. I would love to invest through SIP. Please suggest me few mutual funds and a financial plan if you could to hit these targets.

I’m from Chennai. I would like to invest to my daughters 7 yrs old and 3 yrs old. The policy should help for their education at their age of 17 yrs and to their marriage on their 25th yrs. My premium could be cumulative of 5 – 7 thousand per month for both. Pl suggest a best plan for me to start immediately. Thanks in advance!

I am 30 yr old married guy and having 3 Month old daughter. I earn 80k Per month and having below investment

Term Insurance – HDFC Click2Protect Plus of 1 Cr (Taken Last month)
LIC Whole Life Plan -(Taken in 2012) Premium around 24K/yr for 12 yrs to get 40Lac at Age 79.
Health Insurance – ICICI PruLife Health Saver Plan for 5L per Year for Me, Wife and Baby.

Dear Siva,
Suggest you to first take a health insurance plan for Sum assured of around Rs 3 to Rs 5 Lakh.
Start a RD account and deposit for 6 months or so. Accumulate atleast 3 months of your monthly expenses in this RD account.
Do you have any family member(s) who are financially dependent on you?

Dear Mohan,
Thank you for your appreciation.
Before working on Investment planing aspect, kindly allow me to ask few questions..
Do you have sufficient life insurance cover?
You have 8 more years to accumulate a fund for your Kid’s education goal (Graduation). Consider investing in mutual funds. Do you have prior prior
experience with mutual funds?

I am Shivkumar Kurnawal (age 34 year) working in a BSNL, Public sector Undertaking as a Jr. Telecom Officer at Pune.
My son omkar Kurnawal (age 4 years) now taking admission for L.K.G., My wife is homemaker. We are family of three.

Sir, i want suggestion/guidance for investing money for the education of my son & want plan for retirement.

Now he his of 4 year old. At his age of 17/18, i.e. after 13/14 year his higher education will start may be medical/engg/Management as pr his choice, so i want certain lump sum about minimum of 40 lakhs.

My Salary & current investment details are as given below

After deductions of home loan EMI take home pay is=30,000/-

My home expenses=17,000/-

Personal/Home Loan=12, 00,000/-
of which Rs.2,00,000/- is paid, Monthly EMI of Rs.15,000/- deducted from my account.

I am 32 yr old; have one kid-age 3 yrs; Monthly income – 80k.. I am working as a consultant and have no PF option in my company.

Please advice which is the best option for investing money considering kid education.
I have seen ” Kids Edu calculater” it was helpful… But I can save only around 8 K per month due to current financial commitments.
.
My plan is to invest in SIP mutual funds and Sukanya samridhi saving scheme.. Planning to invest for 15-20 Years long team (Only for Kid Education + Marriage)

Yesterday I have applied Term insurance in HDFC ( Click 2 protect plus) for 1.5 Crore and decided to take additional 50 Lacs term insurance in LIC ( Since my frieds advised to take term policy in 2 differenent insurance company and especially one in LIC .)- Pl share your views on this,

For HDFC Term insurance ( 1.5 Crore) I have to pay 20,000 approx. & for LIC I got info that I have to pay 17.5 K for 50 Lacs cover???

Am just considering below option at present, pl share your views if any changes to be done

Dear Venkatesh,
Actually, there is no need to take two policies from two different companies. But, if you are comfortable by doing so, no harm though. Do note that you need to provide accurate information in proposal forms. Do not hide any facts.

This is Venkat. from chennai.
Hope you are doing fine..
First, i would like to thank you for sharing valuable articles and advise on Finance planning. it is very easy to understand.
I am also getting regular updates from Relakhs and useful for me to analyze and understand about my portfolio.

My personal Details :-

I am 33 yrs old. have one kid ( daughter) -Age-4 ; I am working as a consultant in a Pvt Ltd firm..
Have Medical policy – 12 Lakhs in star health for family ( 5 Lacs Base+ 7 Lacs Top up)
and Taken Term Insularance last year in HDFC click 2 protect for a value of 1.5 Crore.
Bought an old Apartment two years back and housing loan EMI- Rs- 40,000

My Financial plan:

All my goals and requirement are long term. So I had to start investments for following needs

Kid Marriage :- I have purchased a land to meet this future need . Hopefully the value also increasing as i expected.

Retirement :

1. Axis Long term Equity Fund – Rs- 2000 ( This i opted to get benefit of saving taxes -Started 2015- April)

As such i am allocating only Rs- 2000 every month for my ret. corpus.

Considering my current expanses, i would need minimum Rs- 5 Crore as a retirement corpus.
With the help of your retirement calculator, i could understand that i have to invest minimum Rs – 20,000 every month to meet the target.

So,i have decided to invest Rs- 6000 in the following funds this year. & planning to increase every year Rs- 2,000 for next 10 years. ( i.e.,10th year end my monthly SIP amount will be Rs- 8000+20000 =28000 to create retirement corpus.

Since the investment duration is more then 20 years, I have shortlisted Midcap + Equity funds in 60: 40 ratio.

Dear Srikanth,
Both I & my husband are late investors(in early 40’s) and have 2 kids (12 & 5).Due financial obligations we were not able to invest at all apart from buying a house.We earn up to 80k.Pls help us so that we are able to make the most even though we are late investors.
God bless.

Dear Srikanth,
I went through your write up on Life Insurance Policies.I was thinking I’ll close on HDFCs Click to Protect.
I have been working as a consultant for the last 10 years.Joined on the payrolls a month back.Have opted for VFP(15%).I’m confused as to where we can invest.Will send my CTC and breakup of I cud get ur email ID(if that’s ok with u)

Thanks for writing good articles about investment planning, I read many of them found to be very useful for myself.

I have a daughter of 2 month old. I want to invest on her name since today only, considering her education (at 17yr – tentative Degree in Engg or Medicine and marriege at age of 23-25 yr). Can you please guide me what step I need to take means policy to satisfy the needs.

Appreciate your efforts to plan for your family’s future.
Kindly do not postpone the decision to buy a term plan. Buy it ASAP. When did you take LIC plan? (commencement date)
All funds are good, except DSB tax fund. Consider Franklin Taxshield fund instead of it.
Read my article on “Top up & Super Top up Health Insurance Plans“.

Term plan – I am planning to buy HDFC click2protect plus – Life option for 1 Cr which i feel sufficient for me. While taking this plan do i need to inform about LIC whole life plan for sum assured of Rs. 5 lac ?

Mediclaim – I have ICICI Pru Health saver plan for 5 lac per yr for me and dependants (wife and baby). I have taken this mediclaim policy in 2010 when i was unmarried and annual premium was Rs. 10000/-. After marriege i included wife and premium increased to Rs. 15000/-. Now I am in process of inculsion of baby name in this policy & might be premium will be increased by another 5000/-.
Is this policy good one ? Do you suggest to quit this policy ? till date I have only claimed Rs. 5000/- for annual medical check up.
Also I applied for inculsion of baby name in the policy but as per there clause baby name can be included only after 90 days of birth and I am not satisfied with this clause. Also any claim on baby can be claimed after policy anniversary year which is Mar 2016. Could you please guide how to tackle this issue ?

Dear Muthu,
I will surely write an article on the importance of RETIREMENT PLANNING and will also come up with a simple retirement calculator to calculate the required retirement corpus.
I did not get the second part of your question. Are you confused about where to invest for accumulating your retirement fund?

Please advice which is best option for invest in mutual funds considering kids future.
My plan is to invest in SIP mutual funds with option of INR. 60,000 / year.
Investment time will be from 5 to 10 years.

Am just considering below option at present, if you have any better option please advice.